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Volunteer Accountants in Miami Did Free Tax Prep for Millionaires

Accountants in Miami participating in the Internal Revenue Service’s Volunteer Income Tax Assistance Program

Accountants in Miami prepared thousands of free tax returns for taxpayers well above the income threshold mandated by the IRS, even for taxpayers with incomes over $1 million.

A new report from the Treasury Inspector General for Tax Administration on the VITA Grant Program found that the IRS needs to do more to reach low-income taxpayers in underserved and hard-to-reach communities, both urban and non-urban. In 2008, the IRS expanded the VITA program, which dates back to 1969, to create a matching grant program. Under the program, the IRS awarded grants to community groups to offer free tax preparation assistance to local taxpayers. During the 2011 filing season, nearly 3.2 million tax returns were prepared by Accountants in Miami volunteers. The grant program has become a significant component of the IRS’s VITA program.

One-third of the tax returns prepared by the volunteer Accountants in Miami program are prepared by VITA Grant Program grantees. TIGTA’s overall objective was to determine whether the VITA Grant Program is achieving its purpose of extending services to underserved populations in hard-to-reach areas, both urban and rural.

TIGTA inspectors looked at a sampling of tax returns for 2009 through 2011. Every year, the IRS establishes the threshold in which free tax help will be offered. Generally, free tax preparation is offered to taxpayers with incomes of $49,000 or less. For calendar year 2009, income was not to exceed $42,000. For calendar years 2010 and 2011, income was not to exceed $49,000. Nine percent of the tax returns prepared by the VITA Grant Program in calendar year 2009 and 6 percent in calendar years 2010 and 2011 were for taxpayers with incomes over the income threshold.

Fifty (98 percent) of 51 sampled grantees prepared 11,410 returns for taxpayers with adjusted gross income greater than $100,000 during calendar years 2009 through 2011.

“Although these tax returns represent less than 1 percent of the 1.9 million total tax returns prepared by the 51 grantees, preparing tax returns for taxpayers with incomes substantially greater than the established thresholds could affect thousands of low-income taxpayers,” the TIGTA report noted.

Three (6 percent) of the 51 grantees prepared six returns for taxpayers with adjusted gross incomes between $700,001 and $1 million. Tax returns were also prepared for 13 taxpayers with adjusted gross income exceeding $700,000. Two (4 percent) of the 51 grantees prepared seven returns for taxpayers with adjusted gross income exceeding $1 million. At least three of the 13 tax returns were volunteers’ personal tax returns. The volunteer Accountants in Miami program does not prohibit volunteers from preparing their own or relatives’ tax returns, however.

TIGTA determined that the VITA Grant Program has established appropriate guidelines to ensure that grant funds are distributed according to the law and regulations, the report noted. From fiscal years 2009 to 2011, the number of grantees grew 61 percent (from 111 to 179 grantees), and the number of tax returns prepared by grantees grew 38 percent (from 786,058 to 1,080,875). However, much of this growth appears to be a transition to the VITA Grant Program rather than overall growth in the volunteer program.

Analysis of the 51 grantees that received VITA Grant Program funding for fiscal years 2009 through 2011 showed that 21 (41 percent) did not reach 90 percent of their tax return preparation goals but nonetheless received increased funding in the subsequent year. In addition, taxpayers with incomes over the thresholds for free tax return preparation had tax returns prepared by the VITA Grant Program.

“While the IRS collects data to select grantees and allocate awards in the VITA program, our study found that the Service is not using those data to determine where to market the program and what underserved geographic areas need more coverage,” said TIGTA Inspector General J. Russell George in a statement.

TIGTA recommended that the IRS use current data to develop measures and goals and establish a baseline against which future performance can be measured to ensure that the VITA Grant Program is meeting the legislative intent of extending services to underserved populations and hardest-to-reach areas. The data would help the IRS target its recruitment efforts to new partners assisting the underserved populations and establish performance measures for the individual grantees to determine if they are meeting the program’s objectives and goals.

In response to the report, IRS officials agreed to continue analyzing the available data to ensure the VITA Grant Program is meeting legislative intent. However, the IRS did not address the establishment of a baseline for the VITA Grant Program in its response. Without a baseline, it will continue to be difficult for the IRS to determine what underserved geographic areas need more coverage, TIGTA noted.

“The report identified tax returns having been prepared for taxpayers with incomes greater than established thresholds,” wrote Peggy Bogadi, the commissioner of the IRS’s Wage and Investment Division. “There are conditions under which this can occur. Although the targeted audiences for VITA services have been generally low-to-moderate income taxpayers, some taxpayers are served without regard to income as long as they meet other qualifying guidelines or exceptions. Additionally, there is no demographic information captured as part of the return information filed with the IRS on Native Americans, persons with limited English proficiency, or persons with disabilities to assist in identifying provided service.”

She added that to assist in recruitment and retention efforts, volunteers are offered the incentive of preparing and filing their own tax returns, and those of family members, through the program. But the returns prepared under this scenario have no impact on service to low-income taxpayers as they are not generally prepared during normal site operation hours.

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About the Author

Gustavo VieraGustavo A Viera, CPA, is the managing partner in Gustavo A Viera, PA, CPA. His experience spans more than 25 years. His public accounting experience includes a senior audit manager at PriceWaterHouseCoopers with a focus in the healthcare industry, and Chief Financial Officer of Hewlett Packard Latin America and Telefonica of Spain. Gus also writes a blog twice a week that addresses issues his clients have at www.perrinecpa.com/blog. He has also taught in the SBA program in Miami FL, and is admitted to practice in the State of Florida licensed Certified Public Accountant. Gus welcomes questions and he can be reached at Gustavo A Viera, PA, CPA, One Alhambra Plaza Floor PH Coral Gables FL 33134 (786) 250-4450.View all posts by Gustavo Viera →